Financial Management Online MCQ Set 20

QN01. Gordon's Model of dividend relevance is same as

  1. No-growth Model of equity valuation
  2. Constant growth Model of equity valuation
  3. Price-Earning Ratio
  4. Inverse of Price Earnings Ratio
Answer

(B)Constant growth Model of equity valuation

QN02. Dividend declared by a company must be paid in

  1. 20 days
  2. 30 days
  3. 32 days
  4. 42 days
Answer

(B)30 days

QN03. In India, Dividend Distribution tax is paid on

  1. Equity Share
  2. Preference Share
  3. Debenture
  4. Both (a) and (b)
Answer

(D)Both (a) and (b)

QN04. Which of the following is not considered in Lintner's Model ?

  1. Dividend payout ratio
  2. Current EPS
  3. Speed of Adjustment
  4. Preceding year EPS
Answer

(D)Preceding year EPS

QN05. The Transaction Motive for holding cash is for

  1. Safety Cushion
  2. Daily Operations
  3. Purchase of Assets
  4. Payment of Dividends
Answer

(B)Daily Operations

QN06. Which of the following is not considered by Miller-Orr Model?

  1. Variability in cash requirement
  2. Cost of transaction
  3. Holding cost
  4. Total annual requirement of cash
Answer

(D)Total annual requirement of cash

QN07. Which of the following is not a technique of receivables Management?

  1. Funds Flow Analysis
  2. Ageing Schedule
  3. Days sales outstanding
  4. Collection Matrix
Answer

(A)Funds Flow Analysis

QN08. Securitization is related to conversion of

  1. Receivables
  2. Stock
  3. Investments
  4. Creditors
Answer

(A)Receivables

QN09. Cash Discount term 3/15, net 40 means

  1. 3% Discount if payment in 15 days, otherwise full payment in 40 days
  2. 15% Discount if payment in 3 days, otherwise full payment 40 days
  3. 3% Interest if payment made in 40 days and 15%,interest thereafter
  4. None of the above
Answer

(A)3% Discount if payment in 15 days, otherwise full payment in 40 days

QN10. Use of safety stock by a firm would

  1. Increase Inventory Cost
  2. Decrease Inventory Cost
  3. No effect on cost
  4. None of the above
Answer

(A)Increase Inventory Cost

QN11. ABC Analysis is useful for analyzing the inventories:

  1. Based on their Quality
  2. Based on their Usage and value
  3. Based on Physical Volume
  4. All of the above
Answer

(B)Based on their Usage and value

QN12. Which of the following is not a benefit of carrying inventories

  1. Reduction in ordering cost
  2. Avoiding lost sales
  3. Reducing carrying cost
  4. Avoiding Production Shortages
Answer

(C)Reducing carrying cost

QN13. Which of the following is a liability of a bank?

  1. Treasury Bills
  2. Commercial papers
  3. Certificate of Deposits
  4. Junk Bonds
Answer

(C)Certificate of Deposits

QN14. Commercial paper are generally issued at a pries

  1. Equal to face value
  2. More than face value
  3. Less than face value
  4. Equal to redemption value
Answer

(C)Less than face value

QN15. Under income-tax provisions, depreciation on lease asset is allowed to

  1. Lessor
  2. Lessee
  3. Any of the two
  4. None of the two
Answer

(A)Lessor

QN16. From the point of view of the lessee, a lease is a:

  1. Working capital decision
  2. Financing decision
  3. Buy or make decision
  4. Investment decision
Answer

(B)Financing decision

QN17. Risk-aversion of an investor can be measured by

  1. Market Rate of Return
  2. Risk-free Rate of Return
  3. Portfolio Return
  4. None of the above.
Answer

(D)None of the above

QN18. Working Capital Turnover measures the relationship of Working Capital with:

  1. Fixed Assets
  2. Sales
  3. Purchases
  4. Stock
Answer

(A)Fixed Assets

QN19. A Current Ratio of Less than One means:

  1. Current Liabilities < Current Assets
  2. Fixed Assets > Current Assets
  3. Current Assets < Current Liabilities
  4. Share Capital > Current Assets
Answer

(C)Current Assets < Current Liabilities

QN20. Which of the following is a measure of Debt Service capacity of a firm?

  1. Current Ratio
  2. Acid Test Ratio
  3. Interest Coverage Ratio
  4. Debtors Turnover
Answer

(C)Interest Coverage Ratio

QN21. In Inventory Turnover calculation, what is taken in the numerator?

  1. Sales
  2. Cost of Goods Sold
  3. Opening Stock
  4. Closing Stock
Answer

(B)Cost of Goods Sold

QN22. Which of the following is not incorporated in Capital Budgeting?

  1. Tax-Effect
  2. Time Value of Money
  3. Required Rate of Return
  4. Rate of Cash Discount
Answer

(D)Rate of Cash Discount

QN23. Which of the following is not true for capital budgeting?

  1. Sunk costs are ignored
  2. Opportunity costs are excluded
  3. Incremental cash flows are considered
  4. Relevant cash flows are considered
Answer

(B)Opportunity costs are excluded

QN24. Savings in respect of a cost is treated in capital budgeting as:

  1. An Inflow
  2. An Outflow
  3. Nil
  4. None of the above
Answer

(A)An Inflow

QN25. Real rate of return is equal to:

  1. Nominal Rate × Inflation Rate
  2. Nominal Rate ÷ Inflation Rate
  3. Nominal Rate - Inflation Rate
  4. Nominal Rate + Inflation Rate
Answer

(B)Nominal Rate ÷ Inflation Rate

QN26. Nominal Rate ÷ Inflation Rate

  1. (1 + Inf. Rate) (1 + Money D Rate)-1
  2. (1 + Money D Rate) + (1 + Inf. Rate)-1
  3. (1 + Money D Rate) 4- (1 + Inf. Rate)-1
  4. (1 + Money D Rate) - (1 + Inf. Rate)-1
Answer

(C)(1 + Money D Rate) 4- (1 + Inf. Rate)-1

QN27. Which is the most expensive source of funds?

  1. New Equity Shares
  2. New Preference Shares
  3. New Debts
  4. Retained Earnings
Answer

(A)New Equity Shares

QN28. Cost Capital for Equity Share Capital does not imply that:

  1. Market Price is equal to Book Value of share
  2. Shareholders are ready to subscribe to right issue
  3. Market Price is more than Issue Price
  4. AC of the three above
Answer

(D)AC of the three above

QN29. Advantage of Debt financing is

  1. Interest is tax-deductible
  2. It reduces WACC
  3. Does not dilute owners control
  4. All of the above
Answer

(D)All of the above

QN30. Operating leverage arises because of:

  1. Fixed Cost of Production
  2. Fixed Interest Cost
  3. Variable Cost
  4. None of the above
Answer

(A)Fixed Cost of Production

QN31. Business risk can be measured by:

  1. Financial leverage
  2. Operating leverage
  3. Combined leverage
  4. None of the above
Answer

(B)Operating leverage

QN32. If a firm has no debt, which one is correct?

  1. OL is one
  2. FL is one
  3. OL is zero
  4. FL is zero
Answer

(B)FL is one

QN33. If a firm has no Preference share capital, Financial Break even level is defined as equal to -

  1. EBIT
  2. Interest liability
  3. Equity Dividend
  4. Tax Liability
Answer

(B)Interest liability

QN34. In case of Net Income Approach, the Cost of equity is:

  1. Constant
  2. Increasing
  3. Decreasing
  4. None of the above
Answer

(A)Constant

QN35. Which one is true for Net Operating Income Approach?

  1. VD = VF - VE
  2. VE = VF + VD
  3. VE = VF - VD
  4. VD = VF + VE
Answer

(C)VE = VF - VD

QN36. Which of the following assumes constant kd and ke?

  1. Net Income Approach
  2. Net Operating Income Approach
  3. Traditional Approach
  4. MM Model
Answer

(A)Net Income Approach

QN37. Which of the following is incorrect for NOI?

  1. k0 is constant
  2. kd is constant
  3. ke is constant
  4. kd & k0 are constant
Answer

(C)ke is constant

QN38. Dividend irrelevance argument of MM Model is based on:

  1. Issue of Debentures
  2. Issue of Bonus Share
  3. Arbitrage
  4. Hedging
Answer

(C)Arbitrage

QN39. In case of Gordon's Model, the MP for zero payout is zero. It means that

  1. Shares are not traded
  2. Shares available free of cost
  3. Investors are not ready to offer any price
  4. None of the above
Answer

(C)Investors are not ready to offer any price

QN40. Which of the following generally not result in increase in total dividend liability ?

  1. Share-split
  2. Right Issue
  3. Bonus Issue
  4. All of the above
Answer

(A)Share-split

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